Power body blasts shakeup plans

Authority hits out at economic case for radical change to electricity sector as proposed by Labour and Greens.

Labour's finance spokesman David Parker. Photo / Greg Bowker

The Electricity Authority has come out swinging against what Labour and the Greens plan to do to the electricity sector, without mentioning them directly.

In a speech to a stakeholders meeting in Auckland yesterday authority chairman Brent Layton issued a wide-ranging attack on the economic case for radical change to the sector.

Ostensibly a response to criticisms of the status quo by economist Geoff Bertram, consumer advocate Molly Melhuish and engineer Bryan Leyland, it was also directed at "others who have picked up their arguments".

Just because hydro generators do not have to pay Mother Nature for the water that flows through their turbines that does not mean that it is costless to them, Layton said. It has an opportunity cost, which the market prices.

But Labour's finance spokesman David Parker said Layton had glossed over the issue of the free water resource.

"The hydro generators are utilising a very valuable public resource and they are capitalising that into their balance sheets and he doesn't demolish that argument at all," Parker said.

"It is more valuable to them at some times than at others, but it is always valuable to them. And it is free in the sense that they don't have to pay for it."

Layton argued that a retrospective expropriation of value in assets the Crown has sold or transferred to state-owned enterprises would have a chilling effect on investment, not only in the electricity sector.

Claims that the average household would save $300 a year, taken literally, would if capitalised, amount to an expropriation of around $7 billion.

"The chilling effect on investment in New Zealand is likely to be large, widespread and long-lived," Layton said.

Parker said Labour had not shrunk from acknowledging that moving to a regulated asset base which was based on depreciated historic cost would have a negative effect on asset values.

"But I don't mean the historic cost of building them way back when."

Rather, he meant the values at which the assets were transferred in the 1990s to Contact, Mighty River, Meridian and Genesis.

"It's their historic cost, not their predecessors'. And we have left open whether that should be adjusted for inflation."

Parker accepts that there is a cost in such a change.

"You can't unwind that without incurring costs. But is there a cost in terms of people being unwilling to invest in future electricity capacity or elsewhere in the economy? I would argue no," Parker said.

"People with money in their pockets will have to decide whether they want to invest in long-term contracts here, and they will. I've already been approached by wind generators saying, 'Bring it on'," he said.

"I accept that there is investment uncertainty during the two-year period when you do this. I don't accept that there is long-term investment uncertainty and I don't think you would stop people making wise investments in other areas of the economy, just because you are regulating out excessive returns in this area."

Parker also maintains that the single buyer model would increase competition at the retail level, because retailers would be relieved of the need to have large investments in generation to hedge their risks.